Total 906,204 motorcycles were produced
in the country in the fiscal year 2008-09 ended June 30. This depicts a decrease
of 14.4 per cent over 10,56,113 units produced in 2007-08. However, despite the
substantial decrease there was a massive underutilization of the installed
capacity in the fiscal 2008-09 as statistics show that of the total installed
capacity of 1.885 million units less than half was utilized.

These 906,204 motorcycles were
collectively produced by 49 licensed motorcycle manufacturers, out of total 63
licensed motorcycle assemblers. It means 14 licensed assemblers were not in
production. With the issuance of additional licenses during the current fiscal
year, the number of licensed motorcycle manufacturers has increased to total 68
though the new entrants are yet to commence production.

The deregulation of the motorcycle
industry has attracted substantial amount of investment and dozens of
manufacturers, all local, to push the two-wheeler production to record levels
since 2000-01. Two-wheeler production has registered over seven-fold increase
from 117,858 units in 2000-01 to 906,204 units in 2008-09. It has increased to
record levels every year; 133,334 units in 2001-02, 176,591 units in 2002-03,
327,446 units in 2003-04, 476,333 units in 2004-05, and 752,603 units in 2005-06
as per the statistics provided in the Economic Survey of Pakistan 2006-07.

The availability of low-priced Chinese
brands not only has given an option to the people to have access to affordable
two-wheeler but has also forced the manufacturers of traditional manufacturers
of Japanese bikes including the top two-wheeler Honda, Yamaha, and Suzuki to
slash their prices substantially. Though Atlas Honda still remains the top
manufacturer enjoying the biggest market share, there emerged tough competition
from non-traditional manufacturers of Chinese brands. Dawood Yamaha has slid
from second to third position in 2006-07. Non-traditional manufacturers accused
by the critics as the 'manufacturers of clones' are steadily increasing their
share in overall production and market.

PRODUCTION TREND

The statistics show that Atlas Honda
production declined by 21 per cent to 349,525 units in 2008-09 over 460,561
units in 2007-08. Pakistan Automotive Manufacturers Association (PAMA), a
representative of manufacturers of Japanese car and motorcycle manufacturers,
now also have non-traditional motorcycle manufacturers. Besides the original
Honda, Suzuki and Yamaha the four non-traditional motorcycle manufacturing
members of PAMA are Fateh Motors, Plum Qingqui Motors and Pakistan Cycle
Industry, Ravi Motorcycles.

The production figures also show that
the non-traditional manufacturers have consistently been able to improve their
share, which stood at 33 per cent in 2008-09.

It is interesting to note that while
the production of the top manufacturer Honda dropped by 21 per cent in FY09 it
managed to retain its top position by a far margin. Second top manufacturer,
Yamaha's production dipping sharply by 5 per cent to 66,190 units, lost its far
second position by a hair-thin margin to non-traditional and non-PAMA N. J. Auto
Industries whose production increased by almost 4 per cent to 56,134 units in
2008-09.

However, the statistics could be
deceiving as N.J's production figures also include rickshaws, a vehicle that
Yamaha does not manufacture.

Despite the tremendous growth the
overall performance of the local motorcycle industry is somewhat overshadowed by
a massive underutilization of its overall installed capacity. The collective
installed capacity of the 49 active licensed manufacturers stood at 1.885
million units in 2008-09 of which just about 50 per cent was utilized. The
massive underutilization, with few exceptions, was not restricted to small
manufacturers and the new entrants only but even to the top manufacturers like
Honda, which managed to utilize just 46 per cent of their 500,000 units.

The continued growth in production last
fiscal has started showing a sign of stagnation over the years. The last
fiscal's production down of 14.4 per cent, though welcomed, was not as
impressive as that of the previous years. For instance, in 2003-04 motorcycle
production increased by almost 86 percent to 327,446 units.

PAKISTANI MOTORCYCLE ASSEMBLERS
FIGHTING FOR SURVIVAL

Pakistani motorcycle manufacturers are
facing dilemma of increasing prices of their respective models due to rising
cost of production. Traditional manufacturers of Japanese-origin motorcycles
have already increased the prices four times of Rs 1,000 each compared to single
increase of Rs 1,000 by non-traditional manufacturers of Chinese-origin bikes
before the announcement of Budget 2009-10.

The move, aimed at to preempt any
"budgetary shock", was repeated for the fifth time by the traditional
manufacturers in July and the non-traditional manufacturers are still mulling
over to increase the prices of their respective products.

What has stopped the non-traditional
players to announce the price increase thus far after the budget is the fear of
losing whatever share of the market that individual non-traditional manufacturer
has managed to capture.

The dynamics of the motorcycle market
is that around fifty non-traditional manufacturers are competing for the same
market, which has been drying up since the murder of Pakistan Peoples Party
leader Benazir Bhutto on December 27, 2007.

The market has remained more or less
since then and token and symbolic measures announced in Budget 2009-10 have not
helped improve the situation even slightly.

Auto industrialists talked to a number
of non-traditional manufacturers to understand their views about the challenges
that they are facing.

Muhammad Sabir Shaikh, Chairman of
Association of Pakistan Motorcycle Assemblers (APMA), said that the Budget
offered no incentive to the non-traditional manufacturers his organization
represents. There has been no reduction in the import duty on the completely
knock-down (CKD) kits used in the manufacture of motorcycle because though the
import duty has been reduced by 5 per cent to 15 per cent the additional duty on
the same increases by 2.5 per cent to 32.5 per cent.

In additional to 15 per cent duty and
32.5 per cent additional duty the imported CKDs are also subject to 16 per cent
sales tax, 1 per cent special excise duty, and 2 per cent income tax that push
the total incidence of duty and taxes on the CKD import to exorbitant 90 per
cent.

The appreciation of dollar against the
rupee has also pushed the production cost because local manufacturers are
heavily dependent on imported CKDs, components, accessories and parts used in
manufacturing of two-wheelers.

Similarly, the motorcycle vending
industry is also heavily dependent on imported raw materials for the manufacture
of related parts, accessories, and components. In January this year, one dollar
equaled Rs 81 but today it is hovering around Rs 83 thereby pushing the landed
price of the entire range of imported parts, accessories, and components. That
in turn has pushed the cost of production to unaffordable level.

Sabir blames the unjustified valuation
advice of Customs as another setback. The prices of CKDs, components, and parts
from China are much cheaper than that from Japan but the Customs find it fit to
subject the same at much higher import prices than actual for calculating the
duty and taxes. Sabir accuses the Director General Valuation of Federal Board of
Revenue for the unjustified values of many parts used in the manufacture of
two-wheelers.

The substantial increase in the prices
of basic utilities such as petroleum products, electricity, gas, in addition to
up in minimum wage to Rs 6,000 per month has also contributed in pushing up the
production cost that necessitates the increase in retail prices of two-wheelers,
Sabir said.

Calling the unjustified valuation
advice by Pakistan Customs "by far the most disturbing and alarming matter",
Sabir said that the representatives of non-traditional motorcycle assemblers
have provided all the relevant documents in several meetings held in Karachi and
a market survey has also been conducted but the unjustified valuation still
continues.

It is clear that if the said valuation
advice based on overvalued import prices is allowed to be continued it will
result in the closure of a number of non-traditional manufacturers. The ultimate
cost of which would be borne by the consumers because non-traditional
manufacturers have been able to provide an affordable choice to the
transport-hungry low and middle income segments of the society. If the
non-traditional manufacturers are forced to close down, the prices of the 70cc
bike produced by traditional Japanese-origin manufacturers would be increased to
Rs 100,000, he warned.

Sabir called the issuance of
certificates to individual assembler by the EDB every quarter and the
verification of Import Lists at the end of each fiscal year (June-July)
'useless'. Once the OEMs provide the records, the non-traditional assemblers
should demand the EDB to issue life-time certificate or at least a 5-year
certificate subject to be cancelled if input record submission requirements are
not met any particular year.

The import lists are useless, because
Chinese engine manufacturing companies use different names for parts that become
problematic when the shipment-packing list is tallied with the EDB's approved
import lists.

The same is more or less the case with
the issuance of PSQCA License against the EDB Certificate. For instance, PQQCA
license is valid up to March 31, 2010. The APMA should ask the PSQCA to help
solve the problem by issuing a 2-year certificate.

Sabir said that the requirement of EDB
certificate for registration of new motorcycles in Karachi- the economic
powerhouse of the nation- is extremely unjustified and a great cause of
inconvenience for the OEMs.

"However, I feel that they, however,
would ultimately be forced to increase the prices as it will not be possible for
them to sell at a loss or without margin for long. I feel that over the next
three months or at the most by end of this year the minimum price of 70cc
Japanese-origin bike would touch Rs 65,000 while the price of the same produced
by non-traditional assemblers would go up to Rs 40,000.î

Amendments were made in the SRO 656
through Finance Act, 2009 whereby list of annual requirements and consumption
has to be submitted by OEM by August 15, 2009. OEMs are facing lot of problems,
which are as follows:

• Only two months time has been given
to OEMs to adjust under the new deadline environment. Sufficient time is not
given to OEMs to adjust with the new environment.

• Lot of problems are faced by OEMs at
PRAL as list is not properly loaded on the system. Customs people are not ready
to cater this new environment.

• Small OEMs do not have resources to
meet deadlines.

• Even EDB has only two managers who
are unable to meet this deadline. They are making lot of late sittings, which
affect their efficiency. If the entire OEMs list will be available to them, they
are unable to meet this deadline.

Format on which list of requirement
given by EDB is not in accordance with SRO.

EDB has provisionally allotted the 25%
quota based on last year requirement, which creates the problem which is as
follows:

• Small and medium size OEMs purchase
their stocks in one go due to economic order size which save their cost by US
$10 to 15 per unit and also country foreign exchange reserve.

• Growing OEMs require more than 25% of
quota in first quarter as their product will more than that in first quarter.

Provisional manufacturing facility
certificate has been issued by EDB to two/three wheelers OEMs valid up to 30th
September 2009. OEMs are facing problems with Excise & Taxation Office Motor
Registration Authority, Government of Sindh in this regard.

In the Finance Act, 2009 four items are
put into the list of SRO 693, which is subject to additional duty @ 32.5% in
accordance with AIDP. Such action is not beneficial for Two/Three Wheelers OEMs
due to the following reasons:

• As such no vendor available in
Pakistan to manufacture such products.

• Vendors are not ready to manufacture
such high precision products (even they are also not producing what they are
producing at the time of issuance of SRO 693) as other incentives not in place
with legal backing which are committed in AIDP such as: Human Resource
Development through Auto Industry Skill Development Company, Proper Statutory
Rules and Regulation for qualifying under PAII, Allocation of Funds for TASS,
Area allocation for Auto Cluster Development, and Statutory backing of Auto
Industry Investment Policy.